Do you wish to compete? Then you need to grow

Pablo Gómez, Senior Analyst

Our small and medium-sized companies´ productivity, internationalisation and R&D&I rates are considerably lower than those of the economies of our environment. If we wish to have a long-term sustainable industrial fabric, then larger companies with sufficient investment and development capacity parameters are required in order to improve these three.

Time and again articles, papers or opinions are written as regards the need for the SME to grow in order to be able to compete in a globalised economy such as the present one.

Conceptually every company understands this need, but it is nonetheless true that many companies/entrepreneurs think “I am well positioned”, “growth is necessary for all SMEs except for mine”, given that the risk that this absence of growth entails for their company in the medium term is not perceived.

Nowadays, a SME might be able to compete, but its ability to adapt to the changes in the environment, technology and those of the competitive scenario remains very limited. Therefore, any SME which is not able to adapt (or evolve) will lose ground until its eventual disappearance.

However, there are a number of objective parameters which demonstrate that our industrial fabric positioning could clearly be improved as regards specific elements that play a vital role for its future survival. Bearing in mind that 99.3% of the production fabric of the country’s economy consists of small and medium-sized enterprises (SMEs), it is essential to undertake actions aimed at improving the aforementioned positioning.

Entrepreneurial growth is one of the key competitiveness factors of an economy, given that it enables access to sources of financing, facilitates internationalisation, drives investment in R&D&I, and creates higher value added jobs.

As a confirmation of the impact this absence of growth generates in our industrial fabric, we now proceed to analyse the situation of SMEs in comparison with other developed economies, in three basic aspects of competitiveness: (i) Productivity, (ii) Internationalisation and (iii) Investment in R&D&I.

PRODUCTIVITY

As noted in the 2017 “Entrepreneurial Growth as a Factor for Competitiveness” Report by the Instituto de la Empresa Familiar (IEF, Family Enterprise Institute), “larger companies tend to have better productivity indicators”. This is due to the fact that they secure better access to financial markets, invest more in R&D&I and possess an increased exposure to international markets, etc.

Due to our SMEs absence of growth, the generation of gross added value per worker is much lower than in other developed countries. In particular, we maintain productivity ratios between 20% and 30% lower than in Italy, France or Germany, which greatly hinders the competitiveness of our products in international markets.

2.INTERNATIONALISATION

The degree of internationalisation that a company may eventually develop depends once again directly on its size. A company will possess considerable resources the greater its growth and size (financial, commercial, engineering, etc.). These resources will enable, inter alia, the undertaking of internationalisation plans; for the key is not to export, but to be internationalised. Nowadays, in an increasingly globalised world, a presence abroad is a key factor for competitiveness, both to be able to follow customers and to have additional growth potential.

A clear indicator of the degree of internationalisation of a company is the turnover percentage from abroad. In Spain, both for SMEs as well as for larger companies, this percentage is significantly lower than the European Union average, 45% lower in SMEs and 53% lower in larger companies. Without an adequate international positioning, the vulnerability of companies to local markets is much higher and, therefore, their capacity to deal with negative scenarios is inferior.

3.INVESTMENT IN R&D&I

Finally, if the GDP percentage which has been invested in R&D&I were to be analysed in 2015 in the aforementioned countries, it can be seen that Spain has been the country with the lowest investment levels, according to data from the OECD.

Companies are more likely to invest in R&D&I the greater their growth and size. The profits on these investments are reflected in the creation of new and innovative products, the addition of characteristics to current well-known products, etc.

In particular, companies which are capable of lending sufficient importance to this factor will be able to reduce their costs, increase the added value of their offer and gain medium-term competitiveness.

Another aspect which is not easily quantifiable in a statistic is that the absence of growth results in the difficulty for smaller companies to attract and subsequently, retain talent. And talent, as is only natural, is the raw material for the development of any company.

Accordingly, SMEs are in an unfavourable position with respect to the economies of our environment as regards productivity, internationalisation and R&D&I, which places them in a delicate competitive position in the medium term. This type of positioning compels to sustain competitiveness through strategies of low labour costs which, in the short term, mitigate the preceding problems but, in the medium term, are insufficient, resulting in the company being left out of the market. And all this with the added difficulty that the most qualified professionals will always choose proposals in stronger companies and with greater potential for development.

Therefore, in order to be able to improve these parameters, companies must have the resources to invest in their internationalisation, with solid engineering departments working in the development of products and processes. They should also be of sufficient size to maintain a level of productivity equivalent to that of the companies in their environment, attracting and retaining the talent necessary to successfully undertake these challenges. All this happens through the NEED FOR GROWTH, affiliating, merging, and procuring from the neighbour, so that 1 + 1 is something more than two and warrants the medium term adaptability and survival of the company.